An evaluation of financial performance on portfolio holdings by pension funds in Kenya

Abstract

The primary role of pension funds in the country Kenya is to ensure that staffs both in public and private corporations have a form of income regular or lump sum on retirement. Recently most of the pension funds prefer the pensions system that guarantees a regular income for life to the pensioners. This has been informed by the poor saving culture of Kenyans. Retirement Benefits Authority (RBA) regulates all pension funds in Kenya. Lately there has been a concern on the financial performance of pension funds in Kenya holding assets worth 548.8 billion as at June 2013. With the recent NSSF Act 2013 in place the portfolio will get into trillions. Where there are doubts on the financial performance of a particular pension fund, RBA recommends adoption of an annuity through an insurance company or any other financial provider approved by the Insurance Regulatory Authority (IRA) and the Central Bank of Kenya. Majority of pension funds in Kenya invest in the Nairobi Stock Exchange (NSE) except for investments in property, offshore, unquoted equity and cash and cash equivalents. The study will evaluate the financial performance of the portfolio holdings of these pension funds. Using a sample of 35 pension funds, the study established that equities performed better than all other asset classes over a period of 1 year and 3 years. The performance was however poor over a 3 month period. Equities performed better in large funds compared to medium and small funds. Offshore performance was the least especially for medium pension funds. The performance of all funds was better over 3 year period than 3 month and 1 year period. The majority recommendations proposed to address the level of financial management knowledge to the trustees of the various pension fund boards, lobbying for the government to reduce the tax burden to the pensioners and increased member education